Heirs Have the Right to Redeem Tax Liens As a Matter of Law, Setting Aside a Default Judgment and Rule 11 Sanctions Imposed on an Heir That Was Not Made a Party to a Lien Foreclosure Action

Real estate is one of this author’s favorite “hobbies” of late — call it schadenfreude, but the real estate roller coaster is at least as good as reality television, and better than Grey’s Anatomy. As a result, it is not surprising that we should see more real estate cases come out of the woodwork, especially those related to foreclosure.

Today Division One published Roberts v. Robert, which deals with tax lien foreclosure actions. You may not know it, but there is a whole world of investment out there where people buy “tax liens” from local governments and, when the real estate taxes are not paid after three years, the owners of the tax liens foreclose and obtain title to the real property.

The only way to avoid the foreclosure is to “redeem” the tax lien by paying the back taxes, interest and other penalties before the owner of the lien completes the foreclosure action (which wipes out the ability to “redeem”). A.R.S. § 42-18201(A)

A.R.S. § 42-18515 identifies who may redeem a tax lien. It states that a tax lien may be redeemed by: (1) the owner; (2) the owner’s agent, assignee or attorney; or (3) any person who has a legal or equitable claim in the property, including a certificate of purchase of a different date.

So back to the Roberts case. What happened there is that the owner of the property died intestate (i.e., without a will) and the owners of the tax liens brought a foreclosure action but failed to name one of the heirs of the decedent (i.e., a son) in the complaint. The owners of the tax lien obtained a default judgment which, they believed, eliminated anyone’s right to redeem the tax liens.

A full year later, the long, lost son intervenes in the action in the superior court, moving to set aside the default judgment because he was not made a party or served with the complaint. The trial court not only denied his application to set aside the default judgment, but actually imposed Rule 11 sanctions on him for making the pitch that he was entitled to be a party to the foreclosure action.

The Court of Appeals reversed. The Roberts court explained that, “[a]lthough . . . A.R.S. § 42-18151 does not specifically state that an heir may redeem a tax lien, by operation of law an heir succeeds to the ownership interest of the decedent in real property.” The Court went on to explain, “[i]n Arizona, title to a decedent’s real property devolves directly to his or her heirs and devisees, and this is true whether the estate has been or is being administered.” Indeed, A.R.S. § 14-3101(A) states:


Upon the death of a person, his separate property and his share of community property devolves to the persons to whom the property is devised by his last will, or to those indicated as substitutes for them in cases involving lapse, renunciation or other circumstances affecting the devolution of testate estates, or in the absence of testamentary disposition to his heirs, or to those indicated as substitutes for them in cases involving renunciation or other circumstances affecting the devolution of intestate estates.


The Court held that, “[u]nder A.R.S. § 42-18151, Roberts, either as an owner or a person having a legal claim in the property, became entitled to redeem the tax liens.”

Since the Court found that Roberts had a right to redeem, the next question was whether the foreclosure judgment eliminated his right to redeem since he was not joined as a defendant in the lien foreclosure action. Despite the lienholders’ claim that it would have been impossible to locate Roberts, the Court disagreed and stated that:


A diligent search and inquiry for heirs is all that is required, similar to the type of diligence required to justify and effect service of process by publication. Thus, depending on the circumstances, a tax lien holder may need to examine public records or court records, or may need to ask relatives, friends, or neighbors of a decedent property owner about the existence of heirs.


The Court also stated that “when, as here, the tax lien certificate holder has reason to believe the property owner has died leaving heirs, and, after exercising appropriate due diligence, has been unable to locate those heirs, the unknown heirs can be made parties and served with process by publication.” The Court found that Roberts was not served and that there was no reasonable effort made to locate him so that the default judgment was ineffective as to his rights to redeem. Accordingly, the Court reversed the trial court’s judgment, including the Court’s Rule 11 sanctions against Roberts.